It is estimated that global exchanges data, and data related, revenues are well in excess of US$5BN with the large IDBs generating around US$250M*. So, given the advances in enabling technologies and the changing nature of the business, it’s only natural that “other” brokers and execution venues would also like a share of the overall $30BN on offer. Whilst the intrinsic value of data has never been in question, it has been fascinating to watch as the industry finally realises that the rich vein of wealth available at their fingertips has been virtually untapped for decades. As competition hots up and the continual need to control operating costs grows apace, most financial firms are looking for more innovative ways to increase profitability and improve customer service capabilities. And it’s a two-way track, their users are also demanding change and are questioning, in relation to accessing the data they want, why are they still having to put up with monolithic, outdated working practices that invariably come with an expensive price tag?
With data now being recognised as having a significant net asset, slowly everyone is becoming aware of the lucrative nature of ‘information sales’. For many, the annuity style revenue streams that information sales generate would be a very welcome addition to the income being generated by execution brokerage only. All are starting to see the value in offering a direct data service to its customers, both in terms of contributions and delivery, which liberates all the participants from the current limitations imposed by the traditional market data vendor fee structures. This step change in attitude and approach is particularly prevalent within the Agency and/or niche Broker community who tend to operate outside of the main financial hubs and backyards of the big boys.
The regional Agency brokers who tend to specialise in key market sectors and asset classes generate price discovery information which is of great value to their local customers. Their insights and “colour” often provides a unique, in-depth understanding of these economies and trading conditions not readily available elsewhere. And, by virtue of their size and independence, typically they are more agile entities and can quickly adapt the way they operate to suit the changing requirements of their businesses and those of their customers. But what is of equal interest is that many of these firms are now being actively pushed by their customers to provide a direct information service which bypasses the major information vendors and will potentially save significant terminal/license costs.
If you are wondering why this hasn’t all happened before, the origins can be found in a few key areas, particularly in relation to enabling technologies. Once upon a time, investing in a branded ‘market data distribution platform’ was the smart thing to do for the underlying execution broker business. This new ‘internal’ data highway enabled brokers to share information on desk and between desks, often in multiple geographic locations. This same data highway that enabled the creation of super high-quality content was also used as a slingshot to publish and contribute data directly to the vendors or end user community. The downside of the ‘branded market data distribution’ platform investment was that it usually came with a high price tag that many of the smaller and niche execution brokers simply could not afford.
Fast forward to today and technology has moved on and the associated price points have reduced dramatically. Many of the micro-service features in the form of data capture, harvest, contribute and publish, which used to be the exclusive domain of the ageing, heavy-weight platforms are available in a lighter, more cost effective and functionally rich environment, which many of the more forward thinking firms have already adopted.
Simply put, modern, lighter and cheaper technology will enable content owners to service its customers directly like never before. And it’s happening right now. So, sisters and brothers, no excuses, what’s stopping you from doing it for yourselves?
*Source: The MarketData Guru – 2019
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